- Prediction market Kalshi has filed lawsuits against Nevada and New Jersey gaming regulators over cease and desist orders targeting sports-related contracts.
- Kalshi argues its contracts fall under CFTC jurisdiction as two-sided markets trading as swaps, distinct from traditional sports betting.
- The CFTC recently pivoted away from regulation by enforcement, choosing to focus on fraud cases while investigating but not banning Super Bowl event contracts.
Prediction market platform Kalshi has initiated legal action against gaming regulators in Nevada and New Jersey after receiving cease and desist orders that demanded the company halt all sports-related contracts in those states. The lawsuit represents the latest development in the ongoing regulatory debate over whether prediction markets constitute gambling or legitimate financial instruments.
In its legal filing, Kalshi’s attorneys argue that the company’s event contracts fall squarely under the Commodities Futures Trading Commission’s (CFTC) regulatory authority, making them immune from state-level gaming regulation. The legal team emphasized the fundamental difference between Kalshi’s business model and traditional sportsbooks.
The company maintains that its products operate as two-sided markets trading swaps—a type of derivative contract—rather than the traditional betting model where a bookmaker sets odds and takes positions against customers. Tarek Mansour, co-founder of Kalshi, defended the company’s innovation in a statement:
“Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood. We are proud to be the company that has pioneered this technology and stand ready to defend it once again in a court of law.”
The Nevada Gaming Control Board also issued a cease and desist order targeting Kalshi’s election contracts, despite a U.S. judge ruling in September 2024 that such contracts are legal and can be traded nationwide. This apparent contradiction highlights the regulatory uncertainty surrounding prediction markets in the United States.
The legal battle comes amid significant changes at the CFTC itself. On February 4, acting CFTC director Caroline Pham issued a notice announcing the agency would end its practice of “regulation by enforcement” and refocus its efforts primarily on combating fraud.
“The CFTC is strengthening its enforcement program to focus on victims of fraud, as well as remaining vigilant for other violations of law,” Pham stated in the announcement.
This policy shift has been welcomed by cryptocurrency and financial technology firms that have faced numerous regulatory actions during the Biden administration. Coinciding with this announcement, the CFTC launched an investigation into Super Bowl event contracts offered by both Kalshi and crypto.com.
The investigation aimed to verify compliance with U.S. derivatives laws, but ultimately resulted in no enforcement action against the contracts. This outcome may signal the CFTC’s more measured approach to novel financial products under its revised enforcement philosophy.
Meanwhile, the Massachusetts securities regulator has also subpoenaed Robinhood regarding its sports prediction markets, indicating that regulatory scrutiny of this sector extends beyond Nevada and New Jersey.
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